Schools Finally Get Merrill’s $30 Million

SANTA ANA — School districts have finally received the roughly $30 million that Merrill Lynch & Co. paid to avoid criminal prosecution related to Orange County’s 1994 bankruptcy, officials said Monday.

Thomas W. Hayes, the former state treasurer who is overseeing the county’s bankruptcy-related litigation, will announce the payments at a press conference today in Irvine.

The county Board of Supervisors agreed in August that the schools should get almost all of the money that Merrill Lynch agreed to pay as part of a deal with the district attorney’s office that closed a lengthy criminal investigation into the causes of the historic bankruptcy.

But educators had begun to complain in recent weeks that the money was not being distributed because of wrangling over relatively small details and legal points. County officials blamed the delays on the complexity of the deal, which pays schools an additional $4 million in pool account interest beyond the $29.2 million from Merrill Lynch.

Local school systems and community college districts got anywhere from $87,000 to $2.7 million from the Merrill Lynch settlement, depending on how much money they had on deposit in the county’s ill-fated investment pool.

The pool lost $1.7 billion of its value in 1994, causing the county’s financial collapse.

While educators have hailed the windfall, they point out that the almost $30 million paid out so far represents only about 21% of the money they lost in the bankruptcy.

The Irvine Unified School District, for example, was paid $2.7 million from the settlement but is still owed about $9.7 million. The Newport-Mesa Unified School District got $2 million but is still down $8.1 million. The Capistrano Unified School District was given $1.6 million of the Merrill Lynch money but is left with a shortfall of $6 million.

School officials have said the money was sorely needed to repair leaky roofs and cracked playground surfaces and to upgrade decrepit restrooms. Some school districts also talked about using the money to hire more nurses, buy computers or remodel classrooms.

The school districts would have another $25 million to share if the North Orange County Community College District agreed to settle a legal dispute with LeBoeuf, Lamb, Greene & MacRae, a New York law firm that served as bond advisors to both the county and the school district.

Under the terms of a settlement hammered out between attorneys representing the county and the law firm, the county would get nearly $50 million in exchange for dropping the damage suit it filed against the law firm after the bankruptcy.

The settlement is being held up by the North Orange County district, which is a party to the county’s legal action against the law firm and also has a separate legal dispute with LeBoeuf.

Attorneys for LeBoeuf say they will not sign off on the settlement and arrange for the $50-million payment unless the county gets the community college district to drop its separate suit, which is scheduled for trial before a San Diego judge in February.

Despite heavy pressure from county officials, the community college district has refused to drop its suit. County officials are studying whether they could apply even more pressure by freezing more than $250,000 in funding for the college district. They are also investigating whether they can get legislators to cut off some state funds allocated annually to the district.

The college district has come under increasing pressure from other pool participants, including school officials who say the delay in settling the LeBoeuf dispute was depriving them of funds needed to repair school facilities.

Steven H. Staveley, president of the Orange County Police Chiefs and Sheriffs Assn., recently called on the school district to approve the LeBoeuf settlement.

“To not approve this agreement will only cause our schools, as well as public safety, to suffer from the lack of funding provided by the settlement,” Staveley, the La Habra police chief, said in a letter to college President Nancy M. Rice. “Without your consideration, all 200 investors will be the losers.

“We have all taken a ‘hit’ on this,” Staveley added, referring to the county’s bankruptcy. “Our anger has yet to subside. Still . . . it’s time to move on and close this horrific chapter in our history.”

College officials have said they were being unfairly pressured to sign the LeBoeuf settlement.